Updated 10:00 pm, Thursday, July 3, 2003

Entrepreneur Fredrik Blomkvist says his new mobile phone is the best he has ever owned. It has a speakerphone, a large color screen, a camera and Microsoft Corp. software that lets him answer e-mails and consult agendas stored on his computer.

"This is the phone I've been waiting for," said the 37-year-old, who just opened a restaurant in Stockholm, Sweden. "This is the device of the future."

The phone, which had people lining up on sidewalks when it went on sale in Sweden last month, wasn't made by Nokia Oyj, Motorola Inc. or any of their biggest competitors. It was built by High Tech Computer Corp., a Taiwanese producer of hand-held computers.

High Tech is one of a new breed of mobile-phone makers, many of which started out designing, testing and packaging handsets for industry leaders, that now are challenging Nokia and its rivals. Called original design manufacturers, the upstarts may have as much as 40 percent of the $100 billion cellular-phone market by 2005, four times their share today, Stockholm-based market researcher Northstream says.

"It is clearly a potential threat," said Richard Champion, who helps oversee $4.7 billion, including Nokia shares, at Pavilion Asset Management in London. "There's a battle between operators and manufacturers going on given the market dominance of Nokia."

Mobile-phone makers worldwide are emerging from the industry's first slump. Nokia's sales fell last year for the first time since 1992. Motorola cut its 2003 sales and profit forecasts last month. The top five mobile-phone makers have lost about $220 billion in market value combined since 2000. No. 3 Samsung Electronics Co. is the only one of them whose stock has risen.

Small and independent, original design manufacturers say they can react more quickly to customers' needs than bigger rivals, and at lower cost. Their ranks include AlphaCell, a unit of Israeli software producer Emblaze Systems Ltd., Benq Corp., Taiwan's biggest mobile-phone maker, privately held Microcell Oy, a Finnish company which moved its headquarters to Zug, Switzerland, last year, and London-based Sendo PLC.

"When we approach the operator, we tell him that this is the platform, we'll do whatever you wish," AlphaCell Chief Executive Avner Mor said in the single-floor office that houses his 80 employees in the Tel Aviv suburb of Ra'anana. "We'll add applications, we'll add hot keys. We will change the icon, we will change the language, we will change the text. You'll have a full reflection of your brand on the handset."

Flexibility like that is key for operators trying to induce customers to spend money sending photos, video clips and e-mails on their phones. After paying more than $100 billion for licenses to offer faster services, phone companies need to make the most of the services they offer.

In developing the Qtek phone with Microsoft and High Tech, TeliaSonera Oyj, the Nordic region's largest phone operator, had 1,000 business customers test a version for three months. It found that access to e-mail and calendar functions were a top priority.

"For us it doesn't matter who made the phone, that's not our business," spokesman Bengt Olsson said. "It had to be simple and quick to install. With Microsoft, you get the absolute advantage that you have the same menu as the one you're faced with at work."

"Nowadays, anyone can become a mobile-phone maker," said Per Lindberg, an analyst at Dresdner Kleinwort Wasserstein in London. "The technology is available for everyone."

The rise of original design manufacturers has allowed Microsoft to enter the equation, because most newcomers aren't tied to using software developed by their own engineers or Symbian Ltd., a venture whose owners include Nokia, Motorola and Samsung.

"Nokia owns many customers and the operators want to change that," said Peter Wissinger, who heads Microsoft's European mobile-phone unit from Stockholm. "The whole mobile ecosystem will change dramatically in the coming two or three years."